Historic Tax Credits revitalize the state; don't screw it up

By John D. Peebles,ccim, sior, is the senior principal in NAI-Mobile, llc, the leading commercial/industrial real estate practice in south Alabama

Being a commercial real estate broker of many years practice, and a small time real estate developer of historic properties, I feel compelled to weigh in on the current discussion of the intrinsic value of historic tax credits.

I tackled my first historic property in 1974: a handsome Gulf Coast cottage with remarkable Carpenter Gothic details. On the very periphery of the civilized world. In Downtown Mobile. Since that time I have been involved, to a greater or lesser degree in the rehabilitation of about 22 properties ranging from simple cottages to rather more complicated retail/manufacturing buildings in the heart of the CBD.

As much as I might aspire to it I am no rich plutocrat who grows fat off of public subsidies, but in eight or nine of these projects over the years (all of the larger commercial ones) we have used the Federal historic tax credits: for the simple reason that that was the only possible way to get the projects done.

As a rule of thumb it costs about 40-50 percent more per square foot to renovate a historic property than it would be to create the same square foot of new construction of similar property type, yet each one will generate the same rent. Meaning that it would make no economic sense to renovate a historic building that would have to charge a 50 percent higher rent than it's competitor to survive. The project would not be done and the building would be demolished. Does that outcome serve the public good?

All governments use tax policy to manipulate market behavior. That has been the case since governments started taxing their citizens some 3000 years ago. Alabama does it, and the Federal government certainly does it. So, if the people of the sovereign state of Alabama, through their duly elected representatives, endorse the preservation of the State's historic and cultural character, it's heritage and it's inheritance, and wish to manipulate the market to encourage that practice, that is a legitimate, and laudable governmental policy supporting a widely held view throughout the state. And when a bill supporting that policy passes the House by a majority of 91-4, and when 32 senators (out of a total of 35) sign on as sponsors of the bill, that is a pretty profound endorsement of that widely held belief.

Further to measure of the level of support for this policy is the incredibly diverse and wide spread cry of support that has arisen as it has become known that the bill was in trouble. Can anyone recall the last time Democrats and Republicans, blacks and whites, urban centers and rural, north, central and southern Alabama, became so united over an issue? I certainly can't.

And it is clear why there is such deep and widespread support. Never mind that the Federal government has shown for over 40 years that the historic tax credit results in a net plus in tax revenue; disregard the fact that 33 other states including Georgia, Texas, Louisiana and Mississippi all have much more aggressive historic tax credit programs, and renew them regularly without all this self-flagellation; you might even ignore the obvious fact that the rehabilitation of historic properties results in dramatically increased property values resulting in increased ad valorum revenues to the state.

No, perhaps the unprecedented support for this bill comes from the fact that Alabama will see a recapture of between $0.33 and $0.40 per tax credit dollar offered, during the construction phase, long, long before the credit is even claimed; and that over the next 20 years that return in revenue from each dollar of credit will reach $4-$5. That is one hell of an investment.

All of which makes one wonder about the very, very few senators who have placed themselves in direct opposition to the will of the people of this State. Wake up guys: this is an opportunity for Alabama to get one right. Please don't blow it.